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What is a Challenger Bank?

Challenger Banks

If you've never heard of a challenger bank before, don't feel alone. It's a relatively new type of bank that has been created in a new genre referred to as a retail bank. It has a specific purpose arising out of a need to create competition within the financial arena. Here is everything that you need to know about a challenger bank to bring you up to speed and help you determine if this is an institution that might be useful for you.

History of Challenger Banks

According to Wikipedia, there were recent changes made in the regulatory arena in the financial services industry in the United Kingdom. The cost of setting up a new bank in the nation was nearly prohibitive. It was also a time-consuming process to obtain full licensing in the UK. What this meant for the citizens of the country is that there were few banks offering services to the public, limited choices, and not enough competition to make the rates or practices as consumer-focused as they could have been. In short, the public was getting shortchanged.

There were previously few bans in this country that were referred to as the Big Four. This had been the status quo in England and other UK countries for a century. Finally, Metro Bank emerged in 2010 as the first new fully licensed bank approved by the government in that time span. When the worldwide financial crisis of 2008 hit, the UK government chose to open up the market in a manner that would encourage new banks to enter the scene. The powers in charge of regulatory commissions got together and reformed the system to establish the Financial Services Act of 2012. By the Spring of 2013, the new rules were in place making it easier for new banks to obtain full licensure in a shorter time frame. New banks were allowed to enter the UK market with the assistance of the Bank of England's PRA. They established a New Bank Startup Unit that assists new financial firms through the process through the application process. Yet more regulatory changes were made in 2014, resulting in a Financial Conduct Authority publication that clearly outlined the requirements to become a challenger bank. Some challenger banks emerged when firms departed the larger banking groups to strike out on their own such as Virgin Money which departed Northern Rock, and TSB Banks that left the Lloyds Banking Group.

What Is A Challenger Bank?

Challenger banks are distinguished from the older financial institutions by using modern financial technology practices. These new banks tend to gravitate towards online-only processes. They are less expensive to operate than traditional banks and far less complicated. Challenger Banks exist in the United Kingdom. So far there have been 9 of these banks established. They include Atom Bank, established in 2015, offering mortgages with app-based services, Focus FA Limited Monzo Bank, also app-based established in 2016 with 3.5 million customers, Metro Bank, established in 2014, offering limited services to the UK due to severe losses in 2019. Other challenger banks include OakNorth for business and property loans, Shwbrook Bank established in 2011 offering savings, business finance, and personal loans, Starling Bank, established in 2014, Tandem, started in 2015, Tide Bank, a fintech company, established in 2015, and Virgin Money which was established in the UK in 2016.

The Evolution of Challenger Banks

According to Tearsheet, challenger banks are digital banks that are branchless. They are preparing to compete against traditional banks for customers throughout the world. These financial institutions are best described as startup digital banks that are making new inroads in the financial industry by serving millions of rouns the world with banking services that are more convenient than traditional banks. Every service is provided in an online environment. These banks offer convenient and useful mobile apps that allow customers to access all of the services from their smartphones. These banks issue debit cards for their customers to use to access their funds.

Are Challenger Banks Really Banks?

Most of them didn't start as banks. Most offered services for customers to use a debit card to access funds. These banks evolved from debit-only services to more expansive banking services. Most partnered with banks already in existence with some applying for full baking licenses to offer deposit accounts and other banking services. These new startup banks offer stiff competition for customers against the old traditional banks. Challenger banks generally offer low fees for premium accounts with many offering the public free basic accounts at no charge. Some of these banks offer a range of services including travel and purchase insurance, as well as free ATM withdrawals to remain competitive in the financial market today.

The potential to disrupt the industry

Fintech Magazine points out that challenger banks are getting a high level of attention for their new role in the financial sector. These banks are disrupting the industry with their innovative approaches to providing convenient services for banking customers. Most of these startups began as small companies but they're starting to grow in size and expand. Although challenger banks began in the United Kingdom, it's believed that they will begin to pop up throughout the world. They are pioneering in the practice of new fintech-powered service delivery and this could be the main difference between challenger and traditional banks that sets them apart in the years to come. The range of services being offered by challenger banks is becoming broader in scope and diversified. This is the type of diversity that was badly needed in the UK and it has opened up new opportunities for businesses in the financial sector as well as for the types of banking services available for customers in the UK.


Challenger banks provide new services for a new generation of consumers. These new startups are changing the way people in the UK manage their financial affairs. In an age where technology is to the fore, these new banks implemented more modernized banking techniques that are luring customers from the old traditional banks in England to enjoy greater convenience, less hassle, and greater savings on banking fees. They represent what the future of banking may look like a few years down the road.

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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